Hollywood Studios Place Bets on On Demand

Hollywood studios together with cable operators launched an ad campaign today aimed at educating consumers about on-demand video rentals available directly through their local cable providers — and making up for the shortfall generated by declining DVD sales.

20th Century Fox, Focus Features, Lionsgate, Rogue, Sony Pictures Entertainment, Summit Entertainment, Universal Pictures and Warner Bros. Entertainment have partnered with cable companies Armstrong, Bend Broadband, Bright House Networks, iO TV, Comcast, Cox, Insight and Time Warner Cable for the national marketing initiative, which will include TV, print and interactive ads, as well as a dedicated web site at www.cablevideostore.com. Altogether, the companies plan to spend $30 million on their “The Video Store Just Moved In” ad campaign.

Hollywood has long relied on DVD sales as its cash cow, but the market for physical media has been shrinking for years. Adams Research estimated that DVD sales dropped 13 percent year-over-year to just $8.73 billion in 2009, down from $10.06 billion in 2008, according to a recent report.

The decline in DVD revenue could continue, as consumers flock to $1 DVD rentals from kiosk vendors like Redbox or increasingly turn to DVD-by-mail subscription services from Netflix. Sony, Disney, Lionsgate, Paramount and Warner Bros. have attempted to stem losses in DVD sales by striking deals with Redbox and Netflix to delay the availability of new releases rentals for 28 days. By doing so, they hope that consumers will choose to purchase a DVD or Blu-ray disc rather than wait for the rental.

Studios also see some competition for DVD sales from new digital entertainment storefronts like Vudu and Roxio CinemaNow, which are increasingly turning up on HDTVs, Blu-ray players and other consumer electronics devices, while also battling free, ad-supported movies available through online video portals like Hulu, YouTube, and Comcast’s Fancast. While studios do get a cut of digital sales and advertising revenues from movies licensed to be sold or appear on these platforms, in most cases it’s not nearly enough to make up for the loss of revenue they would see for a DVD sale of the same title.

To battle these services, studios are increasingly making videos available for rental on demand on the same day and date that they are available for sale on DVD. As part of the new ad campaign, the studios are touting the availability of new releases such as Precious, The Twilight Saga: New Moon, Ninja Assassin, Pirate Radio, Astro Boy, Bandslam, Did You Hear About the Morgans?, Fantastic Mr. Fox and The Fourth Kind on cable on-demand menus.